bombardier adtranz acquisition

Bombardier-Adtranz

Integration Plan

SMGT 6050: Mergers, Acquisitions & Strategic Alliances

Ebube Anizor (209347741) 11/22/2010

1 Overview

OVERVIEW

Bombardier had evolved from its humble beginnings as a snowmobile manufacturer based in Joseph-

Armanan Bombardier’s garage to a global business in which its once core recreational products were

overshadowed, on a revenue basis at least, by its offerings in transportation, aerospace, and capital.

In every segment in which the company operated it was either number 1 or 2 globally. This was not

the case for the Transportation group (BT) in Europe, where in 2001 it sat in fourth place behind

Alstom, Siemens and Adtranz (AT). However, the AT acquisition presented the opportunity to vault BT

to the forefront of the industry. At a price tag of US$715 million (23% of AT’s 2000 revenue) AT was a

bargain and an opportunity worth considering for several reasons:

• Revenue Growth: Unlike all other Bombardier businesses, BT’s revenue was counter-cyclical so

growth in the sector would provide better balance to its overall revenue (Figure C1 in Appendix C).

With the addition of AT, BT’s annual rail-related revenue could grow to US$7.6 billion in 2001 (up

from US$2.2 billion in 2000) with a backlog of US$14.5 billion.1 While BT was a low margin

business it was a cash generator that helped to finance other Bombardier businesses.

• Geographic Expansion: AT had a presence in a broader range of European markets and the

region was viewed as the centre of technological development. Asia and South America utilized

European engineering and practices so AT provided BT better access to future markets.

• Completion of Product Portfolio: BT lacked propulsion system and train controls competence.

This had been mitigated by outsourcing to competitors and suppliers; however it was a

competitive weakness as was exemplified by AT’s exclusion from a key deal in the UK in 2000. AT

excelled in these areas, and provided immediate cost synergies and long term strategic strength.

Naturally the acquisition was not without its downside. There were many aspects of the deal that

warranted consideration:

• Acquisition Size: While BT had a successfully track record of acquisitions it had never integrated

a company of AT’s size. Based on 2000 figures, AT had nearly 40% more employees, just under 50%

more in sales, and operated in 60 locales. The differing company structures were also of concern.

• Financial Performance: AT posted net losses going back 4 years in spite of restructurings. Even

at a bargain purchase price, an unsuccessful integration could threaten BT’s income and cash flow.

• Due Diligence: AT was understandably reticent to let a competitor gain full access to its “books”

should the deal not complete, so BT’s diligence process was not comprehensive. Furthermore BT’s

European management had not participated in the deal; only amplifying the potential risks.

• Customer Loss: The acquisition could trigger the loss of customers or new contracts. Additionally, AT had earned a reputation for poor production and servicing that competitors could exploit.

A comprehensive plan would be required to realize the projected synergies, tackle the above noted

concerns, and - should the deal clear - anticipate and address regulator stipulations.

1“Bombardier Gets Adtranz for a Bargain”. http://findarticles.com/p/articles/mi_m1215/is_9_201/ai_65805853/

2 Integration

INTEGRATION

While management at BT faced several integration issues that included leadership style, work

environment and regulator stipulations (see Table B1 in Appendix B) the most pressing were defining

an organizational structure that best suited its new global fully integrated operations, executing cost

saving measures that addressed past inefficiencies and new opportunities, and developing a

combined culture that fostered growth for the company and success for its employees.

ORGANIZATIONAL STRUCTURE AND OPERATIONS

Through experience gained by successfully integrating many acquisitions BT had developed expertise

in product assembly and counted it (rather than manufacturing) as a core competency. Utilizing

external suppliers and employing a just-in-time delivery resulted in substantial time and inventory

savings. Accordingly, BT structured its operations primarily by geography, placing plants and

maintenance facilities in strategic countries where customers and suppliers could readily be accessed.

Under DaimlerChrysler AT underwent ongoing restructuring to wring out costs. The resultant

structure was a company organized by product segment and function oriented towards

standardization and modularization to save costs while still meeting the custom needs of global

customers (see Figure A1 and Table A2 in Appendix A). The structures raised compatibility issues.

The relative financial performance of the firms would naturally lead to the conclusion that BT’s

structure should be adhered to in the combined entity; however BT was now bringing new

manufacturing expertise, product scope and market presence under its banner and this required

some consideration in forming the best combined structure.

Complements and Overlaps

The core businesses of BT and AT were to some extent complementary. BT predominantly focused on

producing the mechanical elements of railway vehicles and excelled in the subway, trams and light

rail car segments. AT on the other hand possessed expertise in propulsion and signalling systems and

excelled in the inter-city and growing high-speed car segments (see Figure 1). Therefore, in many

markets there was no significant overlap in activities; in fact AT supplied propulsion technology to BT.

Services Propulsion and Controls

Total Transit Systems

Rail Control Systems

Rolling Stocks Fixed Installations

BT Strength Weakness Neutral N/A AT Combined

Figure 1: Individual and Combined Operational Competencies

There existed some overlap in activities that contributed to the value of the acquisition. BT and AT

offered their own branded products in the regional trains, trams and light rail segments, Also, AT

manufactured the mechanical parts of rolling stock.2 Since Fixed Installations were not consider a

strategic business by BT and should be either excluded from the acquisition or sold post closing.

2“Bombardier/Adtranz Merger Procedure”, http://ec.europa.eu/competition/mergers/cases/decisions/m2139_en.pdf

Combined Entity

Homogeneous products were simply

specific customer demands which varied by country. Furthermore

society was also decidedly country specific. Public policy, fuel prices,

affected travel behaviour and thus demand

strategies were required, an organizational design

appropriate for the combined entity

• Assembly and Service: Train assembly

JIT operations. AT’s facilities in South America and Asia will be integrated.

• Specialty Services: capital intensive and generic activities

plants in strategic regions to optimize the use of resources. These sites will

BT had a successful track record of integrating acquisitions into i

none were of the scale of Adtranz (see Table C1 in Appendix C). By contrast AT’s structure was in

constant flux, and as earlier noted not proven from a profit perspective.

Figure 2

With the anticipated favourable

forward and the fact that the majority of BT’s

its headquarters in Europe (likely Germany)

well for growth in emerging markets where EU standards were embraced.

Management

Given the proposed structure, in the lines of business

management should remain. In the

management should lead (pending the appropriate training in BT management

practices). Whereas AT management was responsible for a product or function across geographies,

they would have a similar responsibility

3 “Bombardier Sets…” http://www.allbusiness.com/company

Manuf./Assembly/Service

North America

Cont. EuropeSouth America

China

Integration

were simply not a reality of the Rail industry; cars had to be built to meet

specific customer demands which varied by country. Furthermore, the role of transportation

country specific. Public policy, fuel prices, and environmental sentiments

and thus demand for trains. Because country/region specific product

, an organizational design that reflected BT’s current structure was the most

(see Figure 2). The highlights of the structure

rain assembly would still continue in the noted regions, employing BT’s

. AT’s facilities in South America and Asia will be integrated.

capital intensive and generic activities will be concentrated in

to optimize the use of resources. These sites will support

BT had a successful track record of integrating acquisitions into its structure and processes; although


constant flux, and as earlier noted not proven from a profit perspective.

2: Integrated Organizational Structure of BT

favourable trajectory of public transportation policy in Europe going

majority of BT’s revenue (52%) was generated on the continent,

its headquarters in Europe (likely Germany) is also recommended. This footing also positioned BT

well for growth in emerging markets where EU standards were embraced.

, in the lines of business where BT expertise

management should remain. In the cases where AT held the expertise (e.g.

pending the appropriate training in BT management

Whereas AT management was responsible for a product or function across geographies,

have a similar responsibility but with more narrow geographical ownership

http://www.allbusiness.com/company-activities-management/company-locations/6187771

Bombardier Transportation

Manuf./Assembly/Service

Atlantic Europe

Mexico and South America

Other Asia

Specialty

North America / Europe


Propulsion

Bogies Cars

3 Integration

of the Rail industry; cars had to be built to meet

ole of transportation in

environmental sentiments

country/region specific product

BT’s current structure was the most

The highlights of the structure are as follows:

still continue in the noted regions, employing BT’s

will be concentrated in specialized

support BT globally.3

ts structure and processes; although


ation policy in Europe going

on the continent, locating

also recommended. This footing also positioned BT

where BT expertise was stronger, BT

the expertise (e.g. propulsion) their

pending the appropriate training in BT management philosophy and

Whereas AT management was responsible for a product or function across geographies,

ownership.

locations/6187771-1.html

4 Integration

COST SAVINGS

The rail industry is an extremely competitive environment, characterized by overcapacity and pricing

pressure resulting from the rationalization needs faced by railroad operators, particularly in Europe.4

This reality was borne out in AT’s poor performance and the relatively low margins of Bombardier’s

transpiration business (5% in 2000). Consequently, immediate action needed to be taken to exploit

BT’s new scale, align AT’s practices with that of BT and “rightsize” the combined company to a cost

structure that makes sense given market demands and likely duplication of assets. The following key

measures should be taken to ensure BT improves profitability:

• Strategic Sourcing: Upon completion of the acquisition BT should immediately renegotiate

pricing with suppliers to take advantage of its new scale.

• Staffing: With AT, BT more than doubles its employees to 38,000, owns 42 plants, and has

operations in 23 countries. Given overcapacity and margins, management, staffing and facilities

will need to be rationalized across the company, but in particular in the earlier stated train

segments where there was overlap. The pace at which employees can be reduced will be

mitigated by EU regulator stipulations and prudent pacing given backlog, anticipated bumps

during the integration and managing of employee morale.

• Project Management: AT’s poor project and cost management practices amounted to almost 20

percent of expenses. BT’s expertise in these areas should be shared immediately; first in the

businesses where AT management will be leading and then throughout the operation. This

should be positioned as in an investment in skills training and not a judgement of past practices.

• Bid and Quality Management: AT’s growing revenues is an indication of it success in acquiring

business. However its inability to consistently build quality products, manage production and

support customers was not only damaging its reputation but rendering projects unprofitable.

Clearly AT could benefit from BT’s governance, manufacturing control and bidding systems.

CULTURE AND ENVIRONMENT

While under DaimlerChrysler, AT was not a strategic business, represented under 3% of revenue from

1997 through 2000 (see Table C1 in Appendix C) and was challenged by steady changes in ownership,

processes and values. By contrast, with the acquisition, AT became an integral part of BT, doubled

BT’s revenue, and was under a management regime noted for protecting jobs, investing in people

and open to adopting best practices from acquired companies. Given its operational struggles and

the immediate need to manage costs AT may not be a full benefactor of BT’s prior practices but this

stark contrast in ownership nonetheless provided the grounds for a successful integration.

Although BT’s European management was unfortunately not involved in discussions with AT,

the company’s prior acquisitions in Austria, Belgium, France and Germany (Table C2 in Appendix C)

mitigated some of the challenges that would normally be present in an international acquisition.

Addressing the following areas will be integral in enabling a successful merger:

• Bid Team: In order to manage any bids that happen during integration a bid team should be

formed with BT and AT staff, representing all areas of the business. This would present key AT

4 DaimlerChrysler 1999 Annual Report.

staff an opportunity to learn BT bid practices. Conversely, BT would benefit from AT’s expertise in

the areas where it had been traditionally weak

launching pad for further successful collaboration

• Management Philosophy: In order to increase buy

philosophies should be shared with

better attuned to its own employees and can avoid

IMPLEMENTATION PLAN

BT has 4 to 6 months before a decision from EU

task is to select an Integration Manager that will lead the due

integration indefinitely. The Integration Manager would ideally

heavily involved in prior European transactions

with the Transportation business). Figure 3 details key integration projects on a cost

Under the guidance of the Integration Manager and top management the

of an implementation plan, in priority order (further details provided in

Before the deal closes decisions regarding organization structure, facilities, management and staff

should be nearly complete. Following due diligence BT should be ready to implement these changes:

• Organization structure: Decisions regarding the organization structure

• Management: Placement of BT and AT management and

• Staffing: Layoffs and plant closing

Post acquisition focus should be on reducing costs and creating a culture of combined success:

• Due Diligence: BT diligence team

• Costing Cutting Measures: Strategic sourcing and project management training

• Bid Team: The cross-company bid team to address business opportunities during integration

• Goals and Vision: BT management to integrate AT managers and form shared vision

Low

$ B

en

efi

tH

igh

$ B

en

efi

t

Short Execution Time

Integration


had been traditionally weak. An early win as a combined entity

launching pad for further successful collaboration and gelling of staff at all levels

order to increase buy-in, BT management and manufacturing

with AT staff by its own managers. AT management is naturally

better attuned to its own employees and can avoid mistakes made by prior ownership groups

BT has 4 to 6 months before a decision from EU regulators is rendered. Given this timeframe

is to select an Integration Manager that will lead the due diligence process and manage post

integration indefinitely. The Integration Manager would ideally be based in Europe and

heavily involved in prior European transactions (more important given BT’s CEO Lortie’s unfamiliarity

Figure 3 details key integration projects on a cost

Figure 3: Integration Projects

Under the guidance of the Integration Manager and top management the following are highli

in priority order (further details provided in Table B1


lowing due diligence BT should be ready to implement these changes:

Decisions regarding the organization structure

Placement of BT and AT management and reporting relationship

Layoffs and plant closing

acquisition focus should be on reducing costs and creating a culture of combined success:

diligence team must be able to hit the ground running on day one

trategic sourcing and project management training

company bid team to address business opportunities during integration

BT management to integrate AT managers and form shared vision

Long Execution TimeShort Execution Time

1. Strategic Sourcing

2. Project & Cost Mgmt.

3. Plant Closures

4. Staff Reduction

5. Bid Management

6. Customer Communication

7. Integration Team

8. Due Diligence

9. Organization Structure

10. Management Structure

11. Shared Goals and Vision

12. IT Integration

13. HR Integration

5 Integration


s a combined entity could be the

and gelling of staff at all levels.

BT management and manufacturing

. AT management is naturally

ownership groups.

is rendered. Given this timeframe BT’s first

process and manage post-

be based in Europe and have been

important given BT’s CEO Lortie’s unfamiliarity

Figure 3 details key integration projects on a cost-benefit basis.

following are highlights

Table B1 of Appendix B).


lowing due diligence BT should be ready to implement these changes:

reporting relationships

acquisition focus should be on reducing costs and creating a culture of combined success:

on day one

trategic sourcing and project management training are quick wins

company bid team to address business opportunities during integration

BT management to integrate AT managers and form shared vision

1. Strategic Sourcing

2. Project & Cost Mgmt.

3. Plant Closures

4. Staff Reduction

5. Bid Management

6. Customer Communication

7. Integration Team

8. Due Diligence

9. Organization Structure

10. Management Structure

11. Shared Goals and Vision

12. IT Integration

13. HR Integration

6 Conclusion

CONCLUSION

The acquisition of Adtranz provided BT with access to complementary technologies that made them a

full-fledged integrated player able to compete across the entire product line and in all markets.5 That

being said, while Adtranz revenues were handsome it had not generated a net profit from 1997

through 2000 and, perhaps of greater concern, at best broke even operationally during the same

period in spite of several efforts by DaimlerChrysler to restructure and streamline (see Figure C2 in

Appendix C). Adtranz’s performance pointed to systemic problems that BT needed to address in

order to realize any post integration synergies.

As highlighted in the implementation plan above, the first priority is to choose the Integration

Manager and team so the 4 to 6 month window could be best utilized. The differing organizational

structures demand priority attention in order to best decide plant and staff rationalization and

position BT to manage growth. Although early cost cutting is contrary to BT’s typical integration

procedures it will be key given AT’s past performance.

While the integration plan is primarily inward looking consideration must be given to outward

parties like regulators, competitors and most importantly customers. BT’s favourable reputation

should place the deal in positive light amongst existing and potential customers. The increase in

market power will be of concern to regulators and BT must be willing to make concessions in order to

move forward. The acquisition of AT fundamentally changes the competitive landscape in the rail

industry globally; however BT will need to carefully integrate AT in order to realize its benefits.

5 “Bombardier Gets Adtranz for a Bargain”. http://findarticles.com/p/articles/mi_m1215/is_9_201/ai_65805853/

Appendix A: Stakeholders and Organizational Structure

APPENDIX A: STAKEHOLDER

STAKEHOLDERS

Stakeholder Perspective

BT CEO • Ensuring acquisition is smooth• Protecting reputation as • Little experience in BT transportation business

BT Management • Job security • Smooth and quick Integration

BT Employees • Job security

BT Shareholders • Growth • Share price increase

AT Management • Job security • Perception of skills

AT Employees • Job security • Stable ownership

EU Regulators • Job protection • Anti-trust

Competitors • Increased market power

BT/AT Customers • Instability • Delayed orders • Quality

ORGANIZATIONAL STRUCTURE

Figures A1a and A1b

In restructuring plans dated back to 1998 AT adopted a strategy common in the automotive and

airline industries by reconfiguring

product lines, for local, regional, an

standardization and modular components,

costs by up to 30%. The future aim was that 60

Bombardier Transportation

Geoography

North America Atlantic Europe

Cont. Europe Mexico

China



A: STAKEHOLDERS AND ORGANIZATIONAL STRUCTURE

Actions

Ensuring acquisition is smooth Protecting reputation as “turnaround” specialist Little experience in BT transportation business

Build Integration Team lead by a BT manager based in Europe

uick Integration

Decide on resultant management structure early in the pre-merger phase

Decide on org. structure and staff levels early

Purchasing AT helps to balance revenue streams (less dependence on cyclical Aerospace group)

Keep AT management in place where BT expertise does not exist

Keep AT staff in place where BT expertise does not exist. Invest in training where applicable.

Plant closures and layoffs will need to be in line with regulator stipulations and company needs

Increased market power of BT/AT Consolidation should reduce potential price wards; but BT should cut out costs in case

BT must integrate quickly and communicate customers in order to fend off the potential loss of customers

Table A1: Stakeholders

a and A1b: Current Organizational Structure of BT and AT


its rail vehicle product line into seven distinct "platforms," or

product lines, for local, regional, and intercity transport. The platforms, which incorporate

standardization and modular components, were part of a "market-driven" strategy

costs by up to 30%. The future aim was that 60-80% of its vehicles would be derived from these

Market/Functional


Adtranz

Product/Trains

High Speed Subway

Cars Car Bodies

7 Appendix A: Stakeholders and Organizational Structure

ATIONAL STRUCTURE

Build Integration Team lead by a BT manager based in

Decide on resultant management structure early in

structure and staff levels early

Purchasing AT helps to balance revenue streams (less dependence on cyclical Aerospace group)

Keep AT management in place where BT expertise

Keep AT staff in place where BT expertise does not . Invest in training where applicable.

Plant closures and layoffs will need to be in line with regulator stipulations and company needs

Consolidation should reduce potential price wards; but BT should cut out costs in case of price battle

BT must integrate quickly and communicate customers in order to fend off the potential loss of

Structure of BT and AT


its rail vehicle product line into seven distinct "platforms," or

d intercity transport. The platforms, which incorporated

driven" strategy intended to reduce

80% of its vehicles would be derived from these

Function

Bogies Drives

Car Bodies


pretested, standardized and modularized designs. Customers would then be able to tailor vehicles to

their specific needs through choices in exterior appearance and interior configurations.

FACILITIES

Austria

Australia

Belgium

Canada

China

Czech Republic

Denmark

Finland

France

Germany �

Hungary

Indonesia

India

Italy

Malaysia

Mexico

Norway

United Kingdom

United States

Poland

Portugal

Romania

South Africa

Spain

Sweden

Switzerland

Taiwan

Thailand

Table A2

OPERATIONS

Figure A2: Current BT Activities in the Railway Transportation Segments

6“Adtranz: Restructuring Based on Seven Product

Services

• Good reputation

• Cost efficient

Propulsion and Controls

•No in-house expertise

•Outsourced

Total Transit


ested, standardized and modularized designs. Customers would then be able to tailor vehicles to

their specific needs through choices in exterior appearance and interior configurations.

Production Maintenance Other

BT AT BT AT BT AT�

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Table A2: Current BT and AT Facility Locations

Current BT Activities in the Railway Transportation Segments

roduct Lines”. Railway Age, 00338826, Apr98, Vol. 199, Issue 4


Rail Control Systems

•No in-house expertise in switching and communications

Rolling Stocks

•No in-house expertise in locomotives

•Expertise in assembly

8 Appendix A: Stakeholders and Organizational Structure

ested, standardized and modularized designs. Customers would then be able to tailor vehicles to

their specific needs through choices in exterior appearance and interior configurations.6

AT

Current BT Activities in the Railway Transportation Segments

00338826, Apr98, Vol. 199, Issue 4

Fixed Installations

•Bombardier not in b/c non-strategic and different from other segments

9 Appendix B: Issues, Projects and Timeline

APPENDIX B: ISSUES, PROJECTS AND TIMELINE

ISSUES

Issue Area Issue Proposed Solution Pros Cons

Financial Best way to leveraged new size of BT

Strategic Supply Cheaper materials, immediate cost synergies

Top line or bottom line approach to acquisition

Top Line Generates wins, feeling of success amongst new BT

Harder to achieve

Bottom Line • Staffing • PM management • Better bidding • Sourcing

• Easier to achieve, low hanging fruit like Overhead

• AT has posted a net loss the last 4 years, must be addressed immediately

• Often means cutting overhead, could hurt morale if timing and approach not right

• Heavy cost in cutting staff in Germany due to labour laws

Tailoring integration to balance revenue and cost initiatives

Execute top and bottom line solutions proposed above

Early Integration

Handling bids early in the integration. How to achieve success.

Use AT’s process Poor record of bid/contract management

Use BT process BT structured process highly effective

Build new quick response team

Opportunity for early wins and team building

Work environment

Focussing management on operations (i.e. getting it right) and not finger pointing at AT

Use GE approach and have a Integration Manager and Business Lead

Create an environment conducive to conducting thorough due diligence

Communicate to AT staff early the benefits of BT ownership (as exemplified by prior acquisitions)

Operations How and when should BT manufacturing philosophy be integrated into AT

Use GE approach – deliver through AT management and not have BT dictate

• Increase in acceptance

Instilling a project management culture

Indoctrinate AT on BT’s PM processes since they are non-existent or ineffective at AT

• Opportunity for AT employees to learn new/refresh skills

• Immediate costs savings at AT

Staffing Minimize tension and maximize teamwork with personnel changes on the way

How should personal changes be made

What senior management staff from BT or AT should be kept

How should the decision on senior staff be made?

Organization Reconciling the differing organizational structures

Use BT’s • Role of transportation was really country specific. Public policy, fuel prices, green movement affected travel behaviour. As a result country/region specific product strategies were required. (e.g. US trains ‘incompatible’ with European)

• BT had successful track record of


Issue Area Issue Proposed Solution Pros Cons

integration as is

Use AT’s

Change both • BT was already weird in geo split and functional split

• Change could be viewed as positive by AT

• Change both orgs may set smooth integration back (operationally)

Location of Headquarters

St. Bruno, Quebec BT had successful track record of integration as is

Berlin • Europe generates more revenue • Trajectory of public policy in

Europe positive for BT going forward

Other European city • Same as above • Nobody is preferred

BT and AT employees need to both adjust/relocate

Other North American city

• Nobody is preferred • Trains less important from a cultural/public policy perspective

• High cost of shipping overseas to majority of customers

• backlash from EU

Leadership What leadership style should be employed by CEO

Directive May be necessary to make the need cost changes quickly

Could create an toxic environment

Participative Including AT management in key positions and in key decisions increases buy-in

Regulators Market share/power May need to sell of non-strategic businesses

Employment Try and relocate staff where possible. Otherwise provide fair severance

Suppliers Keep existing suppliers for a defined period of time

Competition Customer retention Communicate to customers the benefits of the “new” BT. Get a transition team in place early.

Table B1: Integration Issues


TIMELINE

Figure B1: High Level Implementation Plan

6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Pre-Acqusition

Choose Integration Manager and Team

Form Due Dilligence Team / Execute

Form and Implement Org. Structure

Assign and Transition Management

Decide on Staffing/Adjust Levels

Customer Acquisiton and Retention

Form Bid Team / Manage early bids

Communicate new BT to customers

Cost Cutting

Strategic Sourcing

Plant closures and consolidation

Project and Cost Management Training

Cultural

Form shared goals and vision

IT

IT integration strategy

Implement IT integration plan

Human Resource

Harmonize HR policies

Implement HR Plan

Performance Checks

3 months

6 months

12 months

18 months

Overall PlanTiming (months)

Pre-close Post-close

APPENDIX C: BACKGROUND INFORMATION

FINANCIAL PEFORMANCE

Figure C1: Bombardier Segment Growth Rates

In euros 1997

Daimler Revenue 117,572

Revenue (% of Daimler) 3,262 (2.7%)

Operating Profit -444

Net Profit -308

Rationale In anticipation of increasing pricepressure and with continued overcapacity, particularly in Europe, Adtranz sped up its restructuring programs in order to lower its cost base and to improve its competitiveness.

Table C1: Adtranz Revenue and Income

-150%

-100%

-50%

0%

50%

100%

150%

1992 1993 1994 1995

Appendix C: Background Information

ND INFORMATION

Bombardier Segment Growth Rates (source: case materials)

1998 1999 2000

131,782 149,985 162,384

3,316 (2.5%) 3,587 (2.4%) 3,900

-644 N/A 0 (from case)

-632 N/A (posted a loss)

N/Aloss)

In anticipation of increasing price pressure and with

particularly in

dtranz

programs in order

cost base and to

competitiveness.

Adtranz recorded a significant loss in 1998 because in previous years it had taken on contracts at prices that did not covercosts and suffered from technical problems. Comprehensive structural changes were made to increase sustainable earning power. streetcars, underground trains, regional and inter-city trains all the way up to locomotives.

Operating improvements at Adtranz were partially offset by further burdens from the restructuring measures initiated during the year

Positive Operating profit resulting from restructuring

Adtranz Revenue and Income (source: Daimler Annual Reports)

1995 1996 1997 1998 1999 2000 2001

12 Appendix C: Background Information

2000

162,384

3,900 (2.4%)

0 (from case)

N/A (posted a loss)

Positive Operating profit resulting from restructuring

Transportation

Aerospace

Recreational

Capital

Other

13 Appendix C: Background Information

BOMBARDIER ACQUISITION HISTORY

Rail Transportation - Key Acquisitions

Year Target Details Notes

1971 Lohner Werke (Austria) First international acquisition. Tramway manufacturing.

1976 MLW Worthington (Canada)

1984 Alco Power (U.S.)

1988 BN Constructions Ferroviaires et Métalliques (Belgium)

1989 ANF-Industrie (France) US$23.5 million Supplier of railcars and coaches to French rail industry

1990 Procor Engineering (Britain) Passenger and freight cars

1992 UTDC (Canada) US$34 million Light Rail Mass Transit -Purchased from Ontario Gov’t

1992 Constructura Nacional de Carros de Ferrocarril (Mexico)

US$27 million (plus US$54 million in debt)

Railyway rolling stock

1995 Waggonfabrik Talbot (Germany)

1998 Deutsche Waggonbau (Germany) Rail transportation equipment

2001 DaimlerChrysler Rail Systems Adtranz (Germany)

US$715 million 22,000 employees Manufacturing in 23 countries

Locomotives, rolling stock, controls, propulsion

Table C2: Bombardier Transportation Acquisition History

bombardier adtranz acquisition

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